Purchase and sale agreements are useful instruments for ensuring an orderly transition of stakes in private companies. When properly designed and verified annually, they serve several advantageous purposes, such as. (B.dem the purchase of an owner`s equity interest in the business due to a triggering event, voluntarily or involuntarily; limit owners to parties who want non-selling owners to have potential co-owners and business partners as potential co-owners; the provision of an agreed price at which the buyer and seller can transact before a conflict and distortions of valuation occur between the buyer and the seller; the provision of the agreed terms for the payment of the transaction price related to the sale; and additional owners binding on the provisions of the purchase-sale contract. „Fair value“ has no common definition, but is used differently by accountants, lawyers and courts. AICPA uses fair value to measure fair value in accounting codification standard (ASC) 820, Fair Value Measurements and Disclosures. However, lawyers and courts use this term in property disputes. When designing a purchase-sale contract, owners must take into account the language they wish to use and the consequences of using that language in different contexts. A purchase-sale contract facilitates the orderly transfer of business interests when certain events occur. A purchase-sale contract: liquidity for the estate.
There is no finite market for narrow commercial interests. A buy-sell contract can provide the estate of a deceased owner with the cash it so desperately needs. What makes this liquidity even safer is the financing of the redemption obligation by life insurance. To avoid internal conflicts and a smooth transition in situations where one or all of the owners wish to leave the business, a good buy-sell contract may have one of the following additional provisions: „If you retire and cannot sell, what will happen? You either have to take care of management or one of your kids, you have to think about selling to a key employee or turning it into an employee-owned business,“ she says. There are many business planning tools and a purchase-sale contract is just one of them. Sometimes buy-sell agreements only require evaluations after the triggering event has occurred. for example: „In the event of a triggering event, both parties call on an expert to assess the ownership of the owner who sells his stake. . . .